Put simply, cryptocurrency is a digital means of exchange. At its core is a digital currency (e.g. Bitcoin) that can be transferred through accounts using a decentralized system. So, instead of having a third party, like a bank, that supports the transaction of money, cryptocurrency uses blockchain technology as a substitute to record and store all the information. If this sounds too complicated, don’t worry, we will explain more in detail later on.
This blog post aims to help you familiarise yourself with the crypto world. We’ll be discussing the most important aspects related to this topic, including its underlying technology, the use of smart contracts and the difference between coins and tokens. We will also explain the advantages and limitations surrounding cryptocurrency and mention who is implementing this technology for growth opportunities. Finally, we will discuss trust within the crypto market and underline why reviews are essential within this industry.
A Brief History of Cryptocurrency
Before we talk about Bitcoin, the digital coin we have all heard about, we have to mention cryptography. In the early 1980s, David Chaum, an American computer scientist and cryptographer, invented the blinding algorithm. In his research paper, he discussed the idea of untraceable digital payments and communications to reinforce an individual’s privacy. David Chaum is seen as the earliest pioneer in cryptocurrency as his innovative ideas would later become essential elements that define today’s cryptocurrency.
Some time later, in 1998, two computer scientists focused on the notion of a decentralized network. Nick Szabo proposed Bitgold and the use of smart contracts, whilst Wei Dai put forward B-Money. Even though these concepts were never implemented, their ideas did help move one step closer to creating the first cryptocurrency.
Another decade had to pass before Bitcoin was proposed. Amid the 2008 big financial crash and recession, Satoshi Nakamoto, a pseudonymous person or group, produced a white paper on Bitcoin. The thought process behind it was: why do we need a bank or third party in order for two people to pay each other? Why can’t we do it ourselves? Satoshi Nakamoto wanted to create a space where people could pay each other directly and, soon enough, in 2009, Bitcoin was available to the public.
Bitcoin had no value until 2010 when, for the first time, this cryptocurrency was used as payment for a product. On the 22nd of May, a crypto user (Laszlo Hanyecz) purchased 2 Papa Johns pizzas for 10,000 bitcoins. Slowly but surely, the value of Bitcoin started to rise, and many saw this opportunity to create their own digital currency.
In 2011 the first alternative cryptocurrencies (also known as altcoins) appeared on the market. The most famous one at the time being Litecoin. Today, there are more than 4,000 cryptocurrencies in existence, which shows the current popularity of this digital decentralised technology.
The blockchain uses a form of math called cryptology to track and record the flow of money (cryptocurrency) through accounts. Each transaction is then added to the blockchain and placed into a block where the data can’t be changed. This is because the blocks are all linked together creating a digital chain. So, if a piece of information changes within one block, the chain will be broken.
Blockchain technology is revolutionary in the fact that it has digitized human trust whilst removing human errors, like lying, withholding information and making mistakes.
The blockchain will publicly declare every transaction, stating that a specific address sent X amount to this other address, making the transaction not anonymous, as many would think, but traceable. This system is both secure and transparent, and as mentioned above, once the data goes into the blockchain, it can never be changed or altered.
Let’s go a bit more into detail
Each block will contain data of actions performed with this underlying technology. For instance, Bitcoin will usually store information on transactions that include the sender, the receiver and the transaction amount. Depending on what is being exchanged, the blockchain will store more specific information. Ethereum, for example, will save data on transactions as well as smart contracts, but we will explain what the latter is later on.
Also, each block can hold a certain amount of data. Bitcoin, for example, can store around 1500 transactions in one block. After that, another block is added to the blockchain which is achieved through mining.
What is mining exactly? Some users will spend time mining blocks by creating hashes. Hashes are like passwords for each block; whoever solves the block and finds the specific hash (code), will receive coins as compensation. Alternatively, you can look at hashes as complex mathematical equations solved by supercomputers or warehouses full of smaller computers called computer banks.
Miners also have to make sure the hash created for the mined block links to the previous block. If it’s not, the code won’t work; that’s why they call it a blockchain. Also, since everything is connected, it makes it impossible to change information within a block. If this happens, then the hash will change and not link with all the other blocks.
Unfortunately, mining blocks/Bitcoins requires a lot of electricity, and recently the cheapest way to do this was by generating electricity from coal in China. This country produced the majority of the world’s hash rate and was mining the most Bitcoins until recently when the Chinese government outlawed mining. This action caused the miners to pack up and relocate, looking for other places with cheap electricity. Some of these areas include Texas in the US and other countries like Iceland, Georgia, Russia and Venezuela. Due to this unsustainable factor, it is thought by some that BTC will not widely adopt until green mining is found. For this reason, companies and even some countries are looking for more sustainable mining alternatives.
It is speculated that Tesla will allow people who use their solar panels to mine bitcoin by utilizing the surplus energy created from the panel. Whilst El Salvador, the first country to adopt cryptocurrency as legal tender, says it will use volcanic power to mine blocks instead of fossil fuels.
Bitcoin and Altcoins
Bitcoin was the first cryptocurrency created and, after that, came the altcoins. Altcoins are alternative coins to Bitcoin that promise faster transactions, more secure privacy, proof-of-stake and many more features.
In 2017, there was an ICO (Initial Coin Offering) explosion where altcoin companies would promise profit to potential customers. These businesses would incentivise individuals to buy their coins at a lower price, promising that they would be worth much more because their business was expected to reach specific targets. Even though some individuals managed to make a great deal of money, others were investing in thin air as companies were backing promises that hadn’t materialized yet.
If you wish to invest in a cryptocurrency, make sure to research the product first, what it does and what problem it is solving. Also, check that the technology is decent and up to date and that the company is credible and trustworthy.
One limitation of cryptocurrency is that it’s extremely volatile and can change every day. However, usually, the altcoins will follow Bitcoin. For instance, if Bitcoin moves up (e.g. 10%), typically the smaller coins will move up too but by a larger percentage because there’s less value in those coins, and it takes less money to move them higher.
What gives them value?
Well, it depends on what they do. Bitcoin has an economic profile similar to gold. It has a maximum supply and a limited amount created each year. This cryptocurrency has a limit of 21 million BTC to be mined and they predict the mining will end around 2040. Thus, this means that the more demand there is, the more value it will have. However, the massive fluctuation caused each day is because no one is sure how much these cryptocurrencies are actually worth since this technology is still in its early stages.
Coins and Tokens
Put simply, coins are any cryptocurrency that owns its independent blockchain. The biggest blockchain right now is Ethereum followed by Cardano and Solana. Users would join Bitcoin or altcoin companies to store coins (like a bank) or exchange value (transactions).
On the other hand, tokens are cryptocurrencies that don’t have their own blockchain but live on another blockchain. Tokens are digital representations of an asset (physical or digital) that can be exchanged using the blockchain network. Tokens are much easier to create than coins and can exist on one or more blockchains (if allowed).
The Ethereum network, for instance, has created a coin (Ether) and built its own blockchain. However, it also has its own token (ERC20) and even allows people to produce and exchange tokens on their platform, making Ethereum more valuable and sought after.
Tokens can have different functions:
- Platform tokens are created to support decentralized applications (dapps) on the blockchain.
- Security tokens are used to represent the ownership of an asset.
- Transactional tokens are utilized to transfer money.
- Utility tokens are those that have commercial value and give access to future products or services.
- Governance tokens allow token holders to vote on certain things and, the more tokens they have, the more voting power they will gain.
These are types of tokens or assets that don’t change over time. When you buy an NFT, you’re purchasing the right to that asset. It’s basically a piece of data owned by an address that usually represents something bigger.
There are various reasons why someone would buy an NFT. It could be the first of its kind and thus have more value, or it could have real-world benefits (e.g. a membership). Other times the NFT could be unique or rare since just a few were created. Sometimes it could even be because of its ownership history – maybe it’s been owned by a celebrity or someone they admire. The main reason to buy an NFT is for (1) personal usage or (2) resell it at a higher price.
Smart contracts are essentially digital contracts. In cryptocurrency, a smart contract is a computer programme that is stored within the blockchain. Instead of having a third party that checks the contract, cryptocurrency uses a code that removes human error and issues. These smart contracts usually occur within Ethereum, and they are created with a programming language called Solidity.
Here’s an example. Let’s say a product team wants to launch a new item but needs funding. They can create a smart contract asking for X money, and supporters who believe in this cause will fund the project. Usually, within a smart contract, the receiver (the one asking for funds) will give something back in return for their support, for instance, the product itself. If the target fund doesn’t reach its goal (e.g. £1000), the money will be refunded to the supporters. If the target fund is reached, then the product team will receive the funding. However, if the team can’t create the product for whatever reason, the funds will also be returned to the investors.
Smart contracts have two main benefits. Firstly, it’s immutable, meaning that once it is created, it can’t be altered. Secondly, smart contracts are distributed, checked and validated by everyone in the crypto community to confirm their legitimacy. A few of the reasons to use smart contracts is crowdfunding, payment on delivery and issuing loans.
Is Cryptocurrency Safe?
First of all, many cryptocurrencies are regulated to prevent inflation and serve as ‘hard money’. As mentioned previously, some of these companies put a limit on how many units can exist. For instance, Bitcoin will only produce 21 million in total. After that, no more will be produced. Other coins and tokens that have a limited supply include Litecoin, Cardano, Stellar and Chainlink.
Secondly, there are a set of rules and elements needed to carry out transfers. Cryptography, a technology that uses a set of secure communication techniques, is used for each transaction. It usually requires a computational algorithm, a public key (that the user shares) and a private key, which acts as a digital signature/fingerprint. So, every transfer can be checked and reviewed by the crypto community and stored within the blockchain.
When the transaction has been made and verified, it will appear across the network with the sender’s public key. Anyone in the network can view it through the blockchain explorer. Also, everything is constantly tracked and verified by computers and people across the world.
However, if you lose your seed password to your crypto wallet, you lose your coins and tokens. This is because cryptocurrency is decentralized, and there is nobody to help you out as a bank or fraud department. Due to this, some Bitcoin users that have died or lost their access, have essentially lost their money invested, however big or small. Indeed, it is stated that there is around 5/10% of BTC lost per year that will never be recovered.
Finally, it’s very difficult to hack. As we’ve discussed, the blockchain contains different blocks, all connected to each other. They all have a specific hash (code) that links to the previous block created. So, it makes it impossible for someone to change the information within a block as that would cause the hash to change, breaking the chain. Also, the blockchain doesn’t store its data within a central location. Instead, the information in the blockchain is copied, shared and updated on all the computers across the network. So, a hacker is not dealing with one computer but thousands running within the specific crypto network.
Benefits and Limitations
Benefits of Cryptocurrency
The first main advantage of cryptocurrency is that it’s not governed by a central authority, which means these institutions cannot interfere or manipulate the assets and transactions. Also, since there is no third party involved, crypto users don’t have to worry about exceeding transfer limits or any technical issues at the bank.
What’s more, is that anyone can join a cryptocurrency. All you usually need is a desktop or laptop, a crypto wallet, a certain amount of desk space and memory and a link to an operating system that can be Windows 7/8.x/10, Mac OS X or Linux. However, keep in mind that you don’t need a desktop to store your wallet; you can now have it on your smartphone instead, just like mobile banking.
Another advantage of joining and using cryptocurrencies is that you can use them outside this digital landscape. Indeed, some companies accept Bitcoins, including Whole Foods, Microsoft, Lamborghini, PayPal and others.
You may be asking yourself: how do I pay for goods and services with crypto coins? Easy. With a debit card! That’s right, just like with fiat money, you can use a debit card to make online and in-person purchases using Bitcoin or any other type of cryptocurrency. The debit card will automatically convert your digital currency into fiat money at the time of payment, so there’s no need for you to exchange it beforehand. Some of the best Bitcoin/crypto debit cards include Coinbase, BlockCard, Wirex, Crypto.com and Binance.
Another benefit of buying with crypto is that you will only pay for something when it arrives. So, let’s say that you have purchased a product online and opted for the next day delivery; you will only get charged when the parcel arrives to you on that day. If there’s a problem or delay, then this will change.
Also, when you purchase with Bitcoin/crypto coins, there’s little to no transaction cost, it’s available 24/7 as there’s no third party, and there are no limits in purchases and withdrawals, making it fast and efficient.
Finally, your cryptocurrency is stored within your personal wallet that is held by you, not a bank. This means that you have complete control over your coins and transactions.
Limitations of Cryptocurrency
It wouldn’t be a fair comparison if we didn’t look at the limitations of cryptocurrency. So, here we go.
First of all, as mentioned previously, crypto is extremely volatile. Every day the value of crypto coins fluctuates. Let’s take Bitcoin, for example. A year ago, in September 2020, Bitcoin was valued at 10/11K, and four months later, at the beginning of 2021, it had risen to 40K. However, in under a month, it massively dropped to 30.5K. Bitcoin reached its highest value of the year in April, rising to 63.5K but, once again, mid-July saw the crypto coin devalued to 29/30K. Today, Bitcoin has risen again, reaching 51K, but who knows what may happen in a month.
Secondly, we might as well discuss the elephant in the room. Many people, when thinking about cryptocurrency, view this technology as a way for criminals to perform illicit activities without being detected. On the one hand, crypto transfers don’t use names or identification, but addresses (public key) instead. Even if it’s partly traceable since everyone in the network can view the transaction, no one knows who is behind the sender or receiver. However, it’s also true that to sign up and to cash out you need identification.
Law enforcement companies are increasingly collaborating with other agencies to catch criminals. To do this, they use the underlying blockchain technology and specific software tools such as chainanalysis to track, trace and follow the money, and check transfer patterns for any illicit activity. As crypto becomes more globally used, the more surveillance there will be on these platforms. It’s also important to remember that cryptocurrency is a fairly new technology, and law enforcement agencies are still looking for more efficient ways to detect criminals and illicit activities within this digital market.
Another disadvantage of cryptocurrency may arise if you don’t do proper research before investing your hard-earned money. As seen in the 2017 ICO scenario, many individuals lost their investments due to promises that crypto companies couldn’t fulfil. So, if you want to be part of this new digital currency, make sure to get all the information needed before making a costly decision.
Finally, another disadvantage of cryptocurrency is the amount of electricity used for mining. At this moment in time, the cheapest way to mine Bitcoins/blocks and perform transactions is by using coal which negatively affects the environment and incentivises climate change. Indeed, Elon Musk stated that Tesla would not be accepting Bitcoin payments due to this aspect. However, companies and several countries are aware of this problem and looking for more sustainable solutions through the use of renewable energy instead of fossil fuels.
Where Are We Now?
Companies Using Blockchain Technology
AXA is the first insurance company to use blockchain technology to offer insurance. They created AXA Fizzy, a completely automated and secure mechanism that offers compensation for flight delays. If the flight is delayed by more than a few hours, the insurance company will reimburse the full cost of the flight by using Ethereum’s blockchain and smart contracts.
Another company that is using this form of technology is JP Morgan. They use blockchain to transfer and store internal accounts and to facilitate direct payments. The bank even created its own digital coin: JPM Coin, which is seen as an alternative to Bitcoin for the bank’s clients.
If you think that blockchain technology is used by just a few companies, think again. More and more businesses around the world are integrating this digital innovation into their practices. BBVA, Visa, Unilever, Walmart, Ford, Singapore Airlines and FedEx are just some of the few who are incorporating blockchain into their business model.
The Adoption of Cryptocurrency
From today, El Salvador will be the first country to adopt Bitcoin as legal tender. There are a few reasons why it wants to incorporate cryptocurrency as part of its daily life. One is that most of the population does not have a bank account, and for years has been lacking access to basic financial services. Also, El Salvador wants to improve its economy, which has been stagnant for some time, and believe that crypto will help them in the process.
The population of El Salvador will be able to transfer between dollars and Bitcoin and send as well as receive payment with either currency. It will be easily accessible through iOS and Android, and individuals, through the Lightning Network, will be able to make payments through QR codes. The Bitcoin Lightning Network will make Bitcoin faster and more secure, and users will benefit from less expensive commissions, transactions and conversions than using a bank or third party.
If a citizen wants to register for a wallet, they must give their phone number and national identification for security purposes. However, it’s important to state that no one will be forced to use cryptocurrency instead of fiat money. The use of Bitcoins and wallets will be completely optional. Also, to fight climate change, El Salvador will use renewable energy from volcanoes rather than fossil fuels.
The government has bought 400 bitcoins so far, worth $21 million. To promote this initiative, El Salvador has decided to give every citizen $30 worth of Bitcoin, which can be collected by simply downloading the Strike app. Due to the country implementing this digital coin as legal tender, Bitcoin’s worth has skyrocketed to over $52K (up 1.5%) in less than 24 hours.
Yet, some citizens are sceptical about this change, and Bitcoin Law protests have been happening in San Salvador against Bitcoin becoming an official currency.
©Bloomberg Markets and Finance, 2021
Nonetheless, other countries in Central and South America are interested in this change and might follow El Salvador by also integrating Bitcoin into their economy. In Paraguay, Congressman Rejala has mentioned that he wants to incorporate crypto as a legal digital currency. He also states that the state-owned geothermal electricity company would supply 100% clean and renewable energy for Bitcoin mining. Mexico, Panama and others might also follow as more interest has been sparked regarding the potential benefits of cryptocurrency. However, they are also waiting to see how El Salvador reacts to the Bitcoin Law once enforced.
How Can Reviews Help?
Bitcoin is the fastest-growing asset class in the world, outperforming gold and all financial markets in the US, Asia and Europe, with an average growth rate of 200%. The growth is staggering, and yet the issue seems to surround trust.
There are many reasons why potential consumers may be hesitant to enter the crypto world. The solution to this issue lies in the feedback from crypto users. Online reviews can help promote trust and guide amateurs into the right paths whilst avoiding scams and losing money.
Reviews can help explain a series of questions every person asks themselves before investing in crypto. Potential users can learn about the different crypto companies and their offerings and figure out how to choose the right currency to invest in. Through reviews, readers can also understand what steps to take within their journey, from joining to trading.
Customer reviews are an insightful way to understand the crypto world from people who have been using it for some time, almost like expert advice. Crypto reviewers are passionate about this industry; that’s why they want to make sure newcomers are making the right choices and having a positive experience. At the end of the day, these users know the benefits of using this technology and want to share this public resource with the rest of the world.
Overall, reviews help people make informed purchasing decisions, no matter what the product, service or feature is. For this reason, this feedback can be extremely beneficial for the cryptocurrency market.
But what about fake reviews that are promoting or sabotaging a company or product?
This is where we can help. Psydro is the world’s first social review platform that prioritises both its customers (businesses) and users’ (reviewers) needs. We protect companies by combating fake and malicious reviews like no one else. We achieve this by utilizing cutting edge technology to ensure that reviews never go live without having them checked first. If our customers wish to query anything, we will investigate and resolve the issue in 24 hours.
If you own a crypto company and are looking to get reviews that will help you become more credible and gain more customers, Psydro is the review platform for you. We offer features to help you grow, improve your online reputation and understand your customers better. Our top priority is our customers, that’s why their needs will always come first. We want you to grow whilst saving precious time and money. For this reason, we offer the lowest prices on the market, with our plans starting from just £5 per month (inclusive of vat). If interested and would like to learn more about the benefits of joining Psydro, please contact us today.
Is Cryptocurrency the Future of Money?
Even though some people are still sceptical about cryptocurrency, they can’t ignore how powerful this technology is. Since Bitcoin launched in 2009, this form of digital currency has kept evolving and offering an alternative to fiat transactions and the intervention of third parties. After the big financial crash, people began to seriously question the intentions of banks and lost trust in their practices. Cryptocurrency is the alternative for those who feel they could achieve more without these institutions.
Many advantages come from joining the crypto market. You get more freedom and control over your money/transactions since there’s no central authority that will interfere. You can pay with crypto or convert this currency into fiat money to buy a product or service, making the process extremely efficient. Also, transactions are traceable thanks to blockchain technology, where everyone can view the activities performed within the network. Finally, the value of crypto coins is constantly increasing, even if it is still volatile.
Due to these factors, and other reasons, many companies are using blockchain technology and accepting Bitcoins to improve their business efforts and adapt to their customers’ needs.
However, as discussed, there are also some limitations. Nonetheless, it’s important to remember that crypto is still a new technology and evolving every day to ensure the best and most secure user experience.
Online reviews are a great way to promote trust and support for potential users who might be interested in joining the crypto community. Social proof and user-generated content can help change the way crypto is perceived by showcasing authentic feedback from users who have already experienced the power of cryptocurrency.